UNFI refreshes board and plans financial review of company

Just ahead of its fiscal 2023 fourth-quarter earnings report, United Natural Foods Inc. (UNFI) named three new independent board members under a cooperation agreement with JCP Investment Management and announced plans for a board-led financial review of the company.

Providence, Rhode Island-based UNFI said Tuesday that former State Street Global Advisors chief investment officer Lynn Blake, retired Stanley Black & Decker CEO James Loree and James C. Pappas, founder and managing member of JCP Investment Management, will join the grocery distributor’s board as new independent directors effective Thursday.

UNFI noted that their appointments reflect the company’s efforts to drive “ongoing board refreshment and shareholder engagement” as well as bolster corporate governance.

“As we accelerate our transformation plan, seek to drive ever-higher service levels for our customers and suppliers, and enhance shareholder value creation, we look forward to benefitting from the unique skills and perspectives these three highly experienced new directors add to the vast sector, operating and governance experience of our existing directors,” Chairman Jack Stahl said in a statement.

Board gets temporary expansion

Blake, Loree and Pappas bring deep experience in investment management, business strategy, finance, digital innovation and technological transformation, according to UNFI.

Related:UNFI to cut 150 jobs as it streamlines regional operating structure

“Lynn [Blake] is a seasoned investor who will play a pivotal role in the board’s capital allocation and investment decisions and the company’s broader efforts to enhance shareholder value, and who will also benefit our sustainability-focused business initiatives by virtue of her five-year tenure as a member of the Sustainability Accounting Standards Board’s (SASB) investment advisory group,” Stahl explained. “Jim [Loree] is a proven executive and public company director with extensive experience overseeing periods of rapid growth and strategic transformation at Stanley Black & Decker. And James’ [Pappas’] input and insight in the areas of strategy, capital allocation and corporate governance, combined with his deep knowledge of our sector, have already been extremely valuable. We expect each of them to make significant immediate contributions to our board as we create and deliver sustained value for shareholders and all stakeholders.”

The member additions will temporarily expand UNFI’s board to 14 directors—13 of whom are independent—before returning to 11 members at the company’s 2024 annual shareholders meeting. UNFI said its upcoming proxy statement will include the board’s plan to recommend 11 nominees to stand for election at the annual meeting. They will include the three new directors plus eight other nominees picked by the board.

Related:UNFI CEO Sandy Douglas cites ‘deep disappointment’ with Q3 results

In connection with a cooperation agreement between UNFI and JCP, the board also is slated to oversee a financial review aimed at sharpening the distributor’s performance and driving shareholder value creation, UNFI reported.

“Both actions are aimed at accelerating UNFI’s transformation and positioning the company for both near- and long-term success,” the company stated.

Cooperation agreement to sharpen corporate oversight

The cooperation pact includes the addition of the three independent directors, temporary enlargement of the board, certain director replacement rights for JCP, and standstill restrictions in which JCP’s stake in UNFI cannot exceed 9.9% of its common stock, among other items.

No timetable for the financial review was disclosed. UNFI said the board-led review will focus on “evaluating and optimizing” the company’s financial position, including the assessment of ways to best use financial resources to support the distributor’s strategy, fortify the balance sheet and boost long-term shareholder value. As findings become available, they will be released to company stakeholders, according to UNFI.

Related:Class-action suit accuses UNFI of misleading investors

“Our board and management team believe that the transformation plan we previously shared will deliver value for UNFI shareholders through unifying and modernizing our systems, enhancing digital offerings to meet new omnichannel trends, automating and optimizing supply-chain capabilities, and delivering profitable growth,” CEO Sandy Douglas commented.

“Further, we are taking decisive action to right-size our cost structure,” Douglas added. “Alongside these step-change improvements to our business, we believe there may be additional actionable opportunities to focus our operations and create further value for shareholders. Our board is committed to looking at these areas as we continue to move forward with our transformation into a technology-enabled food retail services company.”

The cooperation agreement, board refresh and planned financial review come over six months after UNFI unveiled a customer- and supplier-focused transformation strategy following a plunge in second-quarter earnings that pulled down its stock price.

Weeks later, investors filed a federal class-action lawsuit against UNFI, alleging the company violated U.S. securities laws by failing to disclose key business information. Among investors’ claims were that UNFI was lax in upgrading tools to help the distributor better respond to changing market and economic conditions, which in turn prevented the company from capitalizing on procurement and inventory gains.

“We appreciate the constructive dialogue we have maintained with UNFI over the past several months and are pleased to have come to this agreement with UNFI in connection with the refreshment of the board with new, independent shareholder representatives,” Pappas said in a statement. “With UNFI’s leading position in the grocery food distribution market, substantial assets and consistent free cash flow, the company has significant opportunities to create long-term shareholder value. As a director, I look forward to being a part of the board-led review and assisting with the company’s transformation efforts as the refreshed board helps set UNFI on the path to meaningful shareholder value creation.”